Real Estate Investing Advice From A Rich Dad

Author of the “Cash Flow Quadrant” book, Robert Kiyosaki, says his “Rich Dad” asserts that real estate investing isn’t rocket science. Rich Dad suggested it’s simply a matter of using sound judgment. But it’s common knowledge that sound judgment isn’t, in fact, terribly common.

Kiyosaki also says, the lowest levels of investors are individuals who just haven’t educated themselves about the things that produce positive results. They assume that real estate investing is either too much of a risk or a rip off. Others leap before they look and wind up suffering a loss.

The smarted advice anyone can give you having to do with real estate investing is simply to educate oneself. If, in your rush to make money, you take action without an education, you’ll be doing yourself a great disservice. One of your most important resources is time and if you squander it, you’ll usually find that your money will come next - money you have that you wind up losing, money you could have made if you’d simply taken the time to learn the techniques of successful investors.

“That is all well and good,” you might say. You presumably will agree that studying good information is always a good thing. Knowledge is power, after all…. “What education do I need?” might be your first question. Your second is probably, “How do I go about getting it?”

The first thing you should do is study some essential accounting, which isn’t as nebulous as it appears to be. Accounting is the vocabulary of business. If you’re investing in a business or a piece of property or what have you, you’ll need to be able to check in on it to see whether it will be a benefit (earn you money) or a burden (cost you money). It seems like common wisdom when you look at it, doesn't it? But in order to be able to establish these things, you’ll need to be able to understand balance sheets.

There are four common kinds of financial statements: balance sheets, income statements, cash flow statements, and statements of changes in a share holder’s equity. The latter is pretty self explanatory, and addresses the characteristics that lie surrounded by equity at two opposing points in time. A shareholder’s equity is the net worth of a business, or it’s total assets minus its expenditures.

The cash flow statement is a form that specifies the cash needed to make a company function correctly, including where that money came from. Wikipedia relates a company to a enormous vat of H20 which captures more of the liquid and has pipes running out of it - into the investor’s pockets and others to whom the business is in debt. Your cash flow statement aspires to describe the activity of that liquid – or the movement of that money.

The earnings (or profit-and-loss statement) keeps track of a businesses earnings and expenses over a period of time, while the balance sheet gives accounts for the same thing for 1 particular time-period and addresses liabilities and assets.

It all seems quite simple until you consider Kiyosaki's advice on telling your assets and your liabilities apart from one another. He said that the lending institution, for instance, will declare your property of residence as an asset. It seems reasonable. After all, it’s something you own, correct? Yet according to Kiyosaki's rich dad's definition of liabilities and assets, your house is in fact a liability. It is considered a liability because it ultimately costs you money in monthly fees and updates. It definitely isn't making money for you, and until it starts doing that (say, you move out and are able to rent the first property out to make a profit), then the property isn’t an asset on your balance sheet.

The bank is not actually lying to you outright. Your house is an asset on their balance sheet because it is making money for THEM.

That’s the type of thing you can decide for yourself and ascertain whether you are making or losing money on an investment, if you make the time to get an education. Don’t forget: Knowledge is POWER.

Article Source: http://www.propertymagnate.com/articles

Alex Anderson Is A Minnesota Investment Property Specialist Who Helps First Time Home Buyers In Minnesota To Find Properties. Get A Free Copy Of "The Investors' Rental Guide" At www.GreatInvestmentProperty.com

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